Should You Buy a New or Used Car?

If you’re looking for a new ride, you might ask yourself, “Do I really need a new car or am I willing to consider a nearly new car?” New cars are great, but there’s a lot to be said for major savings. If you’re about to buy a new car, you could potentially save $5000 or more if you decide a nearly new vehicle is an acceptable substitute for a new one.

What is a nearly new vehicle?

Before we get any further, let’s define our terms a bit. You know what a new car is: It’s a never titled, current-model-year vehicle, typically with very few miles on the odometer. The term “nearly new,” for our purposes, would describe a used but titled, pre-owned vehicle of the previous model year. (Currently, “new” would be a 2020 model, and “nearly new” would be a 2019 version of the same make and model.) To keep the comparisons from getting cloudy, the models you consider should be of the same generation. The advantages are diminished when the brand-new vehicle is the first in its generation while the other model is on an earlier platform and therefore lacks current technology and is visually different from the new car.

What about depreciation?

As you have heard over and over, the value of a vehicle plummets the second it’s driven off the dealer’s lot. While that description of the timing might be a bit of overstatement, vehicle depreciation is a big deal. Typically, it is a car owner’s biggest expense during the first several years of ownership, with the largest doses of depreciation coming in years one and two of your ownership.

While to a new-car buyer that mountain of depreciation could represent a big financial hit, to the savvy auto shopper it represents a substantial opportunity to save money. Here’s an example, taken from NADA average retail transaction numbers, that makes the opportunity real: A brand-spanking-new base-model 2018 BMW 330i will typically retail for right around $41,000. If you purchase a one-year-old, 2017 BMW 330i instead of a 2018 model, for example, you’ll get virtually everything the brand-new 3-series offers, but it is likely to retail for around $35,000.

Lest you think this is some anomaly peculiar to BMW or to luxury cars in general, be assured that it is not. Depreciation, like the common cold and blatant disregard for stop signs, is everywhere. Because of that, you can find similar potential savings across the automotive market.

Not ready for the 3-series yet? A Honda Civic is a great entry-level car, and the same theory of the one-year-old, same-generation model works in its case, too. A brand-new 2018 Civic EX version is an excellent value at an average transaction price of about $23,500. In contrast, a used 2017 EX with the same equipment can be found at a retail cost of $21,500. It could have as many as 12,000 miles on the clock, but it will still be covered by the balance of the factory warranty, and you could save about $2000.

You might be saying, “Well, to save just $2000 I’d rather have an all-new Civic.” There’s nothing wrong with that thinking. These two examples point out that the biggest savings typically come on more expensive vehicles. A 2018 Chevrolet Tahoe LT with four-wheel drive will retail for about $56,500. A 2017 Tahoe purchased as a CPO vehicle can be found for about $51,500. It looks the same; it drives the same; it might even smell the same (or it might not), but it can cost almost $5000 less.

One aspect of buying nearly new you should be aware of is that the vehicle you purchase will be one model year older than the brand-new car you are also considering, and that fact will be reflected in a lower trade-in value when the time comes to get another new vehicle. The longer you hold the car, the less this becomes a concern, however.

So are you ready to go the “nearly new” route? Buying nearly new isn’t for everyone, but the shrewd auto buyer who knows the market can make it work to significant advantage. I love new cars, but having a new-to-me car and several thousand dollars in my bank account isn’t bad, either.

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